Steam Locomotives versus Diesels

[Anonymous]

QUOTE: Originally posted by rgroeling

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by rgroeling

Another flame war...[V]

No, no. If there is to be an understanding of what happened, this needs to be looked at as many different ways as possible, through as many eyes as possible. Anthony's put in some hard work and raised thorough questions.

Best regards, Michael Sol

So, its not a flame war like futuremodal's threads which seems to alwasy turn ugly?

Yes, but I am not the one who turns them ugly. I leave that up to the opposition.

[Anonymous]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by rgroeling

Another flame war...[V]

No, no. If there is to be an understanding of what happened, this needs to be looked at as many different ways as possible, through as many eyes as possible. Anthony's put in some hard work and raised thorough questions.

Best regards, Michael Sol

So, its not a flame war like futuremodal's threads which seems to alwasy turn ugly?

[MichaelSol]

QUOTE: Originally posted by rgroeling

Another flame war...[V]

No, no. If there is to be an understanding of what happened, this needs to be looked at as many different ways as possible, through as many eyes as possible. Anthony's put in some hard work and raised thorough questions.

Best regards, Michael Sol

[Anonymous]

QUOTE: Originally posted by tree68

QUOTE: Originally posted by rgroeling

Another flame war...[V]

Yes, but with so much class!

I am sick of seeing the same threads running so many pages of just solid flaming! [banghead] Find something else to argue about!

[tree68]

QUOTE: Originally posted by rgroeling

Another flame war...[V]

Yes, but with so much class!

[Anonymous]

Another flame war...[V]

[MichaelSol]

QUOTE: Originally posted by AnthonyV
[Thus the increased locomotive cost represents only about one percent of the overall revenues.

Well, as I say, without a full-blown productivity study, taken in isolation, 1% doesn't seem like much. But, you are using a productivity measure, without a productivity assessment.

You could generate a rough productivity index by using the revenue index. What you have is a productivity "figure", combined with an revenue "index". Productivity and revenue are two different things, a meaningless comparison. However, the revenue index is suggestive of the productivity index because revenues did in fact stay pretty closely attached to expenses. Milwaukee actually did a little better than that over the period in question. So, we need to link your productivity measure to a productivity index, that is, make the revenue index a productivity measure and then link the two so that they are both indexes of the same thing.

Your chart:

Year ...... Loco cost ...... Revenue Index
1944 ...... 0.42 ...... 100.0
1945 ...... 0.44 ...... 98.4
1946 ...... 0.47 ...... 81.8
1947 ...... 0.44 ...... 90.5
1948 ...... 0.49 ...... 86.7
1949 ...... 0.50 ...... 75.4
1950 ...... 0.47 ...... 83.4
1951 ...... 0.49 ...... 87.5
1952 ...... 0.45 ...... 79.1
1953 ...... 0.44 ...... 76.1
1954 ...... 0.44 ...... 65.8
1955 ...... 0.42 ...... 67.5
1956 ...... 0.45 ...... 72.2
1957 ...... 0.48 ...... 71.1
1958 ...... 0.46 ...... 65.7
1959 ...... 0.47 ...... 62.8
1960 ...... 0.47 ...... 59.8
1961 ...... 0.45 ...... 57.2
1962 ...... 0.43 ...... 57.7

The revenue index roughly represents productivity increases on the railroad in general. To show the relationship to productivity, the motive power cost productivity relative to the productivity index would be, for the years in question

1944 ..1.00
1945..1.06
1946..1.37
1947..1.16
1948..1.35
1949..1.58
1950..1.34
1951..1.33
1952..1.35
1953..1.38
1954..1.59
1955..1.48
1956..1.48
1957..1.61
1958..1.67
1959..1.78
1960..1.87
1961..1.87
1962..1.77

Although I would prefer to show this differently, from a productivity study standpoint, I am trying to work with your format. This is an extremely poor productivity curve. Nobody, and I mean nobody stays in business when an important part of their business "goes the wrong direction" on productivity. And this is because productivity normally increases: it is the norm, cost per unit output goes down. That's what you want. Dieselization is just about the single thing that the American railroad industry did -- and the biggest thing that it did -- that went the wrong way on productivity compared to "normal" productivity measures.

Put it in perspective. This was a period when virtually all other expenses were decreasing by 50-100%. A 1% increase seems insignificant only if the productivity index remains constant. A 1% increase is enormous in an industry that actually had a productivity increase of 50% or more (decrease in costs). It means something is really, really wrong.

Anthony, you concluded:

QUOTE: Thus the increased locomotive cost represents only about one percent of the overall revenues.

Now, think about this for a second, and your use of the word "only."

In an industry that was only earning on the average between 1 and 4% on its overall revenues, anything that represented a one percent increase compared to overall revenues was huge -- representing between 25% and 100% of the net earnings. Does that represent Brown's "net burden on American railways"? You betcha.

Let alone impact on ROI.

Best regards, Michael Sol

[rrandb]

A reason i have not heard yet is that a large part of the need for new motive power was based on the fact that there motive power was streched to the breaking point by the huge volume of traffic from WWII. Steam or diesel they all needed new engines and in a greater quanity than they normally ordered. Many roads were forced to order steam because diesels were back ordered. The finance charges would be accrued no matter which type was ordered. The odds of all rairoads managments simaltaineously making the same bad choices are astronomical. The fact that even the ones who stuck with steam came around proves the opposite. History has proven without dieselization and there inherant savings we would have many more "fallen flags". [2c] [soapbox] as allways ENJOY

[AnthonyV]

Michael:

I should have said the company only had three years with profits from 1921 through 1940. The company filed for bankrupcy in 1925. This information comes from a Milwaulkee Road publication from around 1968.

Further calculations with your data indicate that from 1944 to 1962 the Milwaukee Road spend a total of $39 million in 1944 dollars on additional locomotive costs relative to the case if it remained at the all-steam number of 1944. However, decreases in revenue over the same period totalled over $1 billion in 1944 dollars. Actual revenues totaled $3.3 billion compared to a total of $4.3 billion if revenues had remained constant at the 1944 level.

Thus the increased locomotive cost represents only about one percent of the overall revenues.

Also, I think oltmannd said it well in his previous post.

Thanks

Anthony V.

[oltmannd]

The really interesting question here that is at the center of this discussion is whether the revenue decline that occurred in the 1950s was understood and/or anticipated by 1950?

If it WASN'T, and mgt dieselized for a traffic base that greatly eroded over the decade, then, or course, unit costs are going to look really lousy. Management can be rightfully blamed for not understanding their business.

If it WAS, then either mgt was stupid OR dieselization was part of a move to suck money from a sinking ship - reducing real operating costs THIS YEAR, in lieu of some future loan payment in some future year after the RR has already been sucked dry, abandoned or sold off.

In either case, the problem is the eroding revenue base and the root causes of this eroding traffic base are what need to be determined. I'd have to agree with others that deiselization was not one of the primary causes of the eroding revenue base - but more likely a reaction to it - for one reason or another.

[MichaelSol]

QUOTE: Originally posted by AnthonyV
The Milwaukee Road hadn't turned a profit from 1921 to 1940, so maybe its demise should have happened sooner except that WWII got in the way.
For more information check out the web site www.mrha.com/history/cfm which presents a brief history of the Milwaukee Road.

This is a little bit of an urban legend. I've read it in several places. The Company's operating income in 1928 and 1929, for example, was a healthy $30 million each year.

Best regards, Michael Sol

[MichaelSol]

QUOTE: Originally posted by AnthonyV
By 1962 locomotive costs in 1962 were practically at the 1944 level. These increases are much lower than the 25 percent increase you presented in your earlier post.

We have the same results. The problem with using a productivity tool is that you have to do a productivity analysis, all the numbers have to be changed; then you have to find a metric to compare these to, within the industry, to determine what the numbers mean. Productivity does in fact change with time and something like this, that stays pegged at virtually one spot for 16 years, is just plain weird in real world industrial and business terms. It wouldn't have happened had railroads stayed with steam.

Plus, the Korean war, rampant inflation for three years (which changes budgeting decisions), a variety of things happened. The year 1944 is a poor index year, for instance, because it represented maximum utilization of the fleet. The year 1945 would represent something closer to "normal" and 1950 would have avoided the high inflation years. One thing that clearly did not happen over the span chosen, however, is clearly that economic efficiency of the motive power fleet did not change one iota.

Yet, $113,084,848 was invested into what was supposed to substantially increase the economic efficiency of the motive power fleet.

The second thing that can be discerned is that during a decade of massive productivity improvements throughout the rail industry -- labor reductions of 85-95% were achieved in most areas, with substantial reductions in operating costs, nothing, nothing at all like that happened with regard to motive power, including both shop and train crews.

Costs didn't budge.

The picture you paint of the Milwaukee was shared by all railroads. If you did a constant dollar analysis for all of them, you would have found that just about all Class I's had substantially lower revenues in 1962 than they did in 1944. Milwaukee Road was just about in the middle of the pack as far as that was concerned.

This is why Brown's conclusions vividly support what we see for the Milwaukee, even though Brown didn't look at Milwaukee as an example. This was an industry wide phenomenon.

Insofar as motive power and the Milwaukee's receivership, it's not something I've ever looked at although I've long suspected that two large motive power purchases -- well, by then everything was a capital lease -- at a key point in time may have played a role. That was $94 million worth of motive power at 14% and 16% rates, purchased 1972-1976, running up new costs of $18,686,462 per year. The accumulated charges by 1977 being far in excess of the losses of the Railroad company that put it into receivership. I've mentioned that a couple of times to Worth Smith, and I understand his reasoning for those decisions, but they didn't make the numbers any better.

Best regards, Michael Sol

[AnthonyV]

Michael:

I gave up for the time being on how to post a graph. I will present the results of my analysis of your data in tabular form instead. Shown are your annual locomotive expenditures ($/revenue ton) shown in 1944 dollars along with the revenue index you presented earlier also shown in 1944 dollars.

Although mathematically it is consistent either way, I prefer to represent the data in terms of constant dollars because it gives a more realistic perspective on what is occurring (for me anyway). At first glance, one could get the impression that locomotive costs rose dramatically while revenues stayed fairly constant from 1944 to 1962. However, when expressed in constant dollars a different interpretation emerges, especially when plotted on a graph.

Year ...... Loco cost ...... Revenue Index
1944 ...... 0.42 ...... 100.0
1945 ...... 0.44 ...... 98.4
1946 ...... 0.47 ...... 81.8
1947 ...... 0.44 ...... 90.5
1948 ...... 0.49 ...... 86.7
1949 ...... 0.50 ...... 75.4
1950 ...... 0.47 ...... 83.4
1951 ...... 0.49 ...... 87.5
1952 ...... 0.45 ...... 79.1
1953 ...... 0.44 ...... 76.1
1954 ...... 0.44 ...... 65.8
1955 ...... 0.42 ...... 67.5
1956 ...... 0.45 ...... 72.2
1957 ...... 0.48 ...... 71.1
1958 ...... 0.46 ...... 65.7
1959 ...... 0.47 ...... 62.8
1960 ...... 0.47 ...... 59.8
1961 ...... 0.45 ...... 57.2
1962 ...... 0.43 ...... 57.7


The results indicate that locomotive expenditures in $/revenue ton rose in the late 1940's reaching a high of 18 percent greater, but averaging about 9 percent greater over the period. By 1962 locomotive costs in 1962 were practically at the 1944 level. These increases are much lower than the 25 percent increase you presented in your earlier post.

Revenues, on the other hand, dropped almost continuously during the period, averaging about 25 percent lower during the period. Revenues in 1962 were 43 percent lower than in 1944.

These results suggest it was the dramatic loss in revenue that caused the financial difficulties of the Milwaukee Road. I do not understand how a increase in locomotive costs ranging from a few percent to 25 percent (depending on the analysis) can offset the effect of a 43 percent decline in revenue.

The Milwaukee Road hadn't turned a profit from 1921 to 1940, so maybe its demise should have happened sooner except that WWII got in the way. For more information check out the web site www.mrha.com/history/cfm which presents a brief history of the Milwaukee Road.

Your (and Brown's) thesis is that the railroad could have responded better to the revenue loss if it had modified its approach to Dieselization. You contend that the higher locomotive costs resulted in reduced MOW spending which hurt the railroad. What increase in $/mile would have been possible with this extra money? What are your thoughts on how this would have changed the fate of the Milwaukee Road?

I have taken this analysis as far as I can since I have no additional data. It would be interesting to review historical data for total cost/revenue ton-mile (rather than per revenue ton) industry wide and for specific railroads pre and post Dieselization.

Thanks
Anthony V.

[daveklepper]

The Clinchfield was the only railroad I know of to put diesel controls in a steamer (its excursion 4-6-0) which regularly ran with an F-7B(?) controlled from the steamer in excursion and Sante Claus service.

[AnthonyV]

Txhighballer:

Thanks.

The reason I asked is I was trying to understand in my own mind how the Diesel locomotive could have changed railroad operations due to its different characteristcs, especially in the context of this topic (steam vs Diesels).

For example, I was thinking that if the Diesel allowed for longer, heavier and fewer trains, fewer pushers, etc. it could have affected overall operating costs beyond the cost numbers discussed.

Diesel performance is discussed nicely in the Diesel Victory, although there are not enough numbers to discern the effect on the bottom line.

Thanks again.

Anthony V.

[rrandb]

It would be easeir to control a diesel from a steamer. It would be very hard to MU steam engines together. The savings from diesels was labor and MUing was the sales pitch. The other savings were the huge reductions in helper dictricts. Even railroads with the luxuary of elecrified divisions fell to diesel ( except NE division). Even the roads that bought second hand steam really cheap fell to diesel. If you could show how the railroad could save money by returning to steam they will beat a path to your door. The decision to switch was based on more than just a good job by EMD's salesmen. History speakes for itself and they all made the same "mistake"... [2c] [soapbox]

[ajmiller]

QUOTE: Originally posted by Old Timer

Twelve more pages to go, and nothing proven yet.

Old Timer

What do you want them to prove?

[Anonymous]

Twelve more pages to go, and nothing proven yet.

Old Timer

[Anonymous]

QUOTE: Originally posted by MichaelSol

Today, for instance, the fuel cost substantially exceeds the financing cost on a locomotive hour basis, but the financing cost is still four times the cost as the period 1945-1957, and the cost of diesel fuel is a little over five times times higher than the equivalent cost of coal these days.

If the same decision were being made today, it would be an interesting argument because the key factors that favored Dieselization, 1945-1960, no longer offer any advantages, rather disadvantages.

I was thinking of starting a new topic to address a Y2K steam vs diesel hypothetical comparison, but for now I'll just add on....

Fuel costs are one thing that might favor modern steam over modern diesel, but wasn't the other great selling point of diesels embodied in the MU'ing and remote control capabilities?

This brings up some points to ponder:

1. Was it possible to MU diesel "B" units to steam back in late 40's early 50's changeover period? I've seen the old photos of diesels assisting steam, but I assume those diesels had their own crews. How hard would it have been to add the necessary hardwiring et al to steam locomotives to allow the engineer to simultaneously control add on "B" units while not compromising his ability to operate the steam locomotive? And wouldn't that have added a degree of productivity gain e.g. allowing diesel-assisted steamers to pull longer heavier loads per engine crew?

Even today, when steam is brought out for fan trips and such, a diesel unit or two is added as "protection" power. I assume those diesels have their own engineer as well, and adding diesel control equipment to a steam cab would "compromise" the integrity of the steamer's historic value. But, if such a thing as modern steam made it's way into production, wouldn't those engines be designed for multiple unti control, steam and diesel?

2. Was it possible in the 1950's to operate steam remotely from a lead cab? A stoker can be thermostatically operated even with 1950's technology, as witnessed by my grandfathers old coal fired central heating at the old farmstead. What about monitoring a trailing unit's steam gauges from a lead cab? How important was it for someone to be in the cab "feeling out" the running characteristics of a 1940's "modern" steam engine such as a Challenger? Was there any research heading in that direction before the diesel victory?

3. Micheal had mentioned that one of the disadvantages of diesels was their increased complexity which led to greater than expected maintenance costs. Fast forward to the modern steam concepts, which are weighted toward the idea of steam turbine-electrics. Wouldn't a steam-electric locomotive have the same complexity problems as a diesel-electric, more so than the reciprocating steam concept?

I've read through a few of the modern steam web pages, and I haven't really seen a proposal for a modern reciprocating steamer e.g. rods and such, but with modern condensers, high pressure boilers, et al. Same for direct drive steam turbines.

Assuming a 4 to 1 cost differential of synthetic coal vs diesel fuel, is it possible for the advantages of modern reciprocating steam or direct drive steam turbines to outweigh the "established" advantages of diesel-electrics in terms of remote control/MU capability, starting tractive effort, braking power, etc.?

[MichaelSol]

QUOTE: Originally posted by AnthonyV

Regarding obtaining the Brown reference, I meant to ask if it was available on line.

I've never seen it online.

QUOTE: Questions regarding two issues:

The first is how to post a graph in this forum - I don't know what to do after I click the insert image button. Also, what format must the image be in?

I'm not sure that I know. I was cussing a blue streak about posting graphs when one of my kids stopped by and showed me how to upload to some websites he operates, then I link to that website and the file. Whether that is how it is supposed to work, I have no idea, but it seems to work. If you wi***o email the file, I can post it in that fashion.

QUOTE: In your previous reply, you stated that Dieselization added to the financial burden of the railroads. How did it add to it when the cost/revenue ton levels are essentially constant when expressed in real terms?

This gets to be kind of a technical area, relating to productivity studies. However, from that standpoint what that tells you is that zero productivity gains resulted from the Dieselization process.

During the period 1945-1962, in order for that to have meaning, you would look at revenues 1945, $228,946,936, and compare that to revenues 1962, $227,664,109. Had Milwaukee simply remained as productive in 1962 as in 1945, Milwaukee should have earned $130,093,776.57 in constant 1945 dollars.

Let's use 1945 dollars that is, no inflation effects 1945-1962.

Fuel costs ... $9,638,564
Maintenc costs ..$12,133,493
Financing cost .$1,647,153
Total Direct costs $23,419,210

The total would be 10.23% of the total revenue that year.

Moving forward at constant dollars,
Fuel .....$4,137,173.71
Maint ....$6,236,249.71
Financing .... $6,484,935.65
Total Direct Costs ...$16,858,359.08

But, for productivity purposes, we have to look at 1962 revenue in constant dollars, $130,093,776.57.

The direct costs of motive power in 1945 was 10.23% of total revenue earned. The direct costs of motive power in 1962 was 12.96%, just about 13% of total revenue earned. In constant dollars, MOW dropped from 19.63% of revenues to 11.63%.

In order to maintain the same profitability, if all other expenses had remained equal, by 1962, total direct costs of motive power under steam (with no improvements because of attrition or productivity) would have been $23,290,038.35 rather than the $29,502,128 that it actually was, fully dieselized.

Costs of motive power was the single area of railroad operations that lost economic productivity relative to earnings.

It can be a headache correlating revenue tons with constant dollars over a 17 year period. In summary, though, Milwaukee had zero improvement in productivity on a revenue ton basis. Because the revenue tons dropped, Milwaukee incurred a 28.01% decline in associated costs in constant 1947dollars. Unfortunately, Milwaukee, like virtually all railroads, needed a minimum of a 43.18% decline in costs associated with Dieselization (that is to say, productivity increases) just to stay even.

Best regards, Michael Sol

[daveklepper]

I commented on the Boston and Maine's rapid dieselization program earlier, and pointed out why their conditions made diesilization the right step. But what about the Norfolk and Western? They had modern steam power and efficient servicing and use of that power. They bought some Jeeps for a branch line with light axel loadings and then some nine years later they were all diesel. With on-line coal mines and coal being a big part of their business. And they were always and efficient and wellrun railroad.

[txhighballer]

QUOTE: Originally posted by AnthonyV

I have heard the phrase "diesels can't pull what they can start and steam can't start what they can pull" numerous times. I have also read statements about Diesels being good for drag service but steam can really pull at speed.

Wouldn't a Diesel pull the same tonnage at the same speed as a steam locomotive as long as the hp ratings are the same? If the hp is the same, wouldn't this translate into the same tractive effort for a given speed?

For example, if a set of Diesels is rated at say, 6,000 hp and a steam loco is rated at a peak of 6,000 hp at 40 mph, wouldn't they pull the same tonnage at 40 mph since they would have the same tractive effort at that point?

Also, wouldn't Diesels actually pull more over all other speeds since the power output is constant over most of its speed range while the steam loco's power output varies greatly with speed?

Finally, doesn't this mean that the Diesels can always have more trailing tonnage than a steam loco with equal power?

Is this correct or am I missing something?

Thanks and happy New Year!

Anthony V.

Anthony:

Read my earlier post on your comment on this thread. In short,a diesel locomotives tractive effort and tractive effort are at maximum when starting.A steam locomotive has it's full tractive effort available,but not it's full horsepower.

[germanium]

Reminds me of the old proverb "Marry in haste and repent at leisure", except than when they went down the drain they took the stockholders with them before they had a chance to repent. I'm not so sure that railroad (railway) managements would be any wiser even in today's economic climate.

[Anonymous]

QUOTE: Originally posted by Murphy Siding

Perhaps I missed this detail. Did the railroads finance the purchase of steam locomotives, or pay cash for them?

My [2c]:

Remember, steam locomotive purchases were done on a staggered as needed basis, not purchased as a wholesale changeover of the entire locomotive fleet. As railroads grew out of the 1800's and into the 1900's, they added more newer steam as necessary, and ran their old steam into the ground before it was scrapped or rebuilt.

The main point of the Brown study was that the advent of dieselization resulted in a wholesale locomotive fleet changeover in a relatively short amount of time, thus for the first time in the industry's history they accumulated a debtload before which had been unseen. This action also resulted in a large percentage of each railroad's steam locomotive fleet being scrapped when those locomotives still had 20 or 30 years of useful service life. Thus the cost of lost depreciation.

Look at the WP link provided by selector. Western Pacific bought brand new 2-8-8-2's and 4-6-6-4's in 1937. Within 15 years those still new locomotives had been scrapped in favor of the new diesels, so those steamers probably had at least another 15 years of useful service life, and probably would have been good for another 30 years. Then look at the life span of WP's first FT diesels. They barely lasted 10 years before they were in need of replacement!

Even without the benefit of the Brown study, the problems of premature massive dieselization should be obvious to anyone.

[MichaelSol]

QUOTE: Originally posted by germanium

May I ask the question - if Financing charges were excluded, would it give a truer comparison figure ? The vast increase in those same Financing charges would seem to suggest that diesels were purchased rather than leased (or does the increase reflect the cost of new facilities ?).
I'm looking only at the figures in your last post, and admittedly with no great knowledge of the subject.

The numbers shown do not reflect the following:

1) Opportunity cost of $40,000,000 in accelerated depreciation charges. These would, in the years incurred, show a significant impact on an accounting basis to the cost of operations, and a further impact on ROI. In fact, it did, we just haven't looked at it here.

2) The cost of additional facilities constructed after 1945 associated wtih Dieselization. Brown estimated that by 1957 this amounted to $2.7 billion, and this was further increased to about $4 billion by the mid-to-late 1960s. Naturally, this additional investment -- if Dieselization was not paying for itself -- would have further negative impact on ROI if included in the numbers.

These were, in this era, purchases, not leases at least at Milwaukee Road. Given that these figures do not show a "cost" associated with the additional capital investment required, as well as the losses associated with scrapping of substantially undepreciated assets, it is safe to say that the numbers shown are a best case scenario, that a truer picture of the effect on ROI would be worse than what is shown.

It certainly could make it look better for dieselization by not considering as many of hte associated costs as possible.

The things that made Dieselization initially attractive -- low fuel costs and low interest rates -- were both items that would change dramatically in the future. It would be only a few years, relatively speaking, before coal would once again be far cheaper than diesel-- that shifted a key cost factor back in favor of steam -- and that interest rates would be climbing toward, then past 10% -- which shifted a key cost consideration back in favor of long-lived road power, which was steam.

Today, for instance, the fuel cost substantially exceeds the financing cost on a locomotive hour basis, but the financing cost is still four times the cost as the period 1945-1957, and the cost of diesel fuel is a little over five times times higher than the equivalent cost of coal these days.

If the same decision were being made today, it would be an interesting argument because the key factors that favored Dieselization, 1945-1960, no longer offer any advantages, rather disadvantages.

Best regards, Michael Sol

[AnthonyV]

Michael:

Regarding obtaining the Brown reference, I meant to ask if it was available on line.

Questions regarding two issues:

The first is how to post a graph in this forum - I don't know what to do after I click the insert image button. Also, what format must the image be in?

In your previous reply, you stated that Dieselization added to the financial burden of the railroads. How did it add to it when the cost/revenue ton levels are essentially constant when expressed in real terms?

I'll present a graph of results of analysis of your data once I find out how to do it.

Thanks

Anthony V

[germanium]

May I ask the question - if Financing charges were excluded, would it give a truer comparison figure ? The vast increase in those same Financing charges would seem to suggest that diesels were purchased rather than leased (or does the increase reflect the cost of new facilities ?).
I'm looking only at the figures in your last post, and admittedly with no great knowledge of the subject.

[MichaelSol]

QUOTE: Originally posted by AnthonyV

I have tried unsuccessfully to obtain Brown's study. Do you know where or how to get a copy, even for a fee?

Oh gosh, I have always assumed it was available through ILL. I have a copy, "somewhere," and if I can locate it, I'll make it available.

QUOTE: You commented that fuel and maintenance cost declined because of traffic losses. Yet your last graph shows fuel and maintenance costs are presented in terms of cost per revenue ton. Wouldn't presenting the data on a revenue ton basis eliminate the effect of traffic on the data?

The revenue ton basis is to show that the costs of actually carrying freight didn't change as a result of dieselization.

QUOTE: Accounting for inflation, fuel and maintenance costs in constant dollars declined substantially on a revenue ton basis. This suggests that substantial efficiency gains were realized by Dieselization. These were negated by the finance charges as you stated many times.

If fuel costs and maintenance costs tracked inflation, yes.

QUOTE: However, you agreed that locomotive costs were the same on a constant dollar basis before and after Dieselization. You also agreed that is true that MOW expenditures decreased as a result of decreases in revenue.
One thing I cannot understand is if locomotive costs stayed constant (in constant dollars), how could have this affected the ROI? Stated another way, say the railroad has a dollar to spend. With steam, it spends it on fuel and maintenance. With Diesel, it spends the same amount in real terms (i.e., one dollar) on fuel, maintenance, and finance charges. Either way, it spent a dollar. How would this affect the bottom line, i.e., the ROI. How did the drop in revenue affect the ROI?

The "constant dollar" method of comparison is tricky, because it doesn't do a very good job on estimating productivity gains. It is further complicated by the fact that individual classifications inflate at different rates. Fuel, particularly petroleum, is a notoriously volatile market maker that often tracks poorly with inflation. Here, the bulk of the inflation occured before dieselization really took off, and a better measure would be to pick a different comparison date.

Looking at it somewhat differently, simply showing percentage changes in key categories, comparing 1945 to 1962, revenue was pretty flat during that period.
...................................1945/1962
Operating Revenue ......-0.56%
Operating Expenses ....-3.14%
Net Tons ....................-24.49%
Fuel ...........................-24.88%
Maintenance ..............-10.06%
Financing Charges ... +589.00%
Fuel+Main.+Finance ...+25.97%
MOW .........................-41.06%
.
You can see from this that the financing costs created an identifiable budget problem. Fuel and maintenance efficiency gains were overwhelmed by the finance charges. The combined total of these expenses associated with Dieselization increased by 25% even as revenue declined. Plus, this adds $113,084,848 in new assets during that time period, yet generates a negative rate of return on those assets. I don't know how this could not have affected ROI, unless something else was cut dramatically.

Something had to give. Either the ROI broke down, or other operating expenses took the hit. It looks like roadway maintenance either had enormous productivity gains, unlikely, or it just got cut. These numbers would, however, prompt an analyst to look a little further, something else was also offering a drag to earnings, in addition to the financing charges,the MOW reductions more than offset the financing charges.

Best regards, Michael Sol

[germanium]

Well said, Michael, along with all your other excellent, lucid posts.

[MichaelSol]

QUOTE: Originally posted by Old Timer
Unless it can be demonstrated that Mr. Brown's study influenced the thinking of railroad managements, and changed the course of their financial history....

You've missed the point, yet again. You mistate the thesis, misinterpret the results, personally attack a respected professional engineer, and then claim some poor competence in the field. You leave the thread in a huff, then insist on returning to misinterpret something new.

Brown's point is that the lack of thinking on the part of railroad managements led to decisions and actions that did, indeed, change the course of their financial histories.

Any decision that adds to the financial burdens of corporations that cannot earn their cost of capital and have declining revenues is a negative decision because companies like that cannot afford mistakes on an industry-wide scale.

The salient points of every post you have made here are to 1) misunderstand what is being said, and 2) offer zero, absolutely zero, proof of your own contentions. You constantly demonstrate you don't even understand the conversation. All in all, all you've offered is a lot of hot air.

Anyone looking at important financial decisions that go wrong are, typically, attempting to find out why so that the future does not repeat the past.

You obviously don't like the thread. You also obviously have nothing positive or useful to contribute to it.

Why do you insist on returning and proving those points?

Best regards, Michael Sol